We came across a bullish thesis on Crocs, Inc. (CROX) on Substack by Unconventional Value. In this article, we will summarize the bulls’ thesis on CROX. Crocs, Inc. (CROX)’s share was trading at $102.42 as of Jan 27th. CROX’s trailing and forward P/E were 7.53 and 8.36 respectively according to Yahoo Finance.
A busy retail store full of customers trying on a wide range of footwear.
Crocs’ current undervaluation by the market stems from concerns over its brand’s staying power and skepticism about the Hey Dude acquisition, but a closer analysis suggests these fears are overblown. The Crocs brand is resilient, with a history of extraordinary growth and a remarkable comeback since the pandemic. From 2021 to 2024, the company generated as much revenue as in the prior decade, with annual growth of ~24% compared to ~3% from 2012-2020. This growth is underpinned by a strategic marketing and product innovation flywheel that continuously refreshes the core product, leveraging partnerships, influencers, and performance marketing. The brand has achieved global scale, selling over 100 million pairs annually across 80+ countries, and remains relevant despite marginal declines in North American wholesale. International markets, particularly in China and India, are just beginning to grow, offering significant upside.
Financially, Crocs remains a well-managed business with operating margins in the mid-20% range, most of which converts to free cash flow. Claims of stagnation are contradicted by the brand’s continued momentum, especially in sandals, which are penetrating a large and untapped category. While some see North American wholesale declines as a red flag, management’s confidence in long-term growth suggests otherwise. Crocs has established a strong foundation, and its market presence is unlikely to fade, making it an attractive core business.
The Hey Dude acquisition, while widely criticized, may simply need more time to deliver results. The brand is navigating challenges, including consecutive quarters of declining sales, but management’s strategy mirrors the successful playbook used for Crocs a decade ago. Efforts to clarify branding, streamline distribution, and establish a unique identity are underway, and early signs show potential. Although immediate financial returns from Hey Dude have been underwhelming, the parent company has paid down over $800M of acquisition-related debt, and Hey Dude has contributed $500M in operating income. This underscores its ability to generate attractive margins over time.
While Hey Dude’s future hinges on effective execution, its potential remains intact. With Terence Reilly now at the helm, there’s renewed optimism about its trajectory. Crocs’ core franchise provides a stable cash flow base for investments and buybacks, and Hey Dude, though not a home run yet, remains an attractively priced growth option. Together, these factors create a compelling investment case, as Crocs continues to demonstrate resilience and growth potential in the face of market skepticism.
Crocs, Inc. (CROX) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 42 hedge fund portfolios held CROX at the end of the third quarter which was 40 in the previous quarter. While we acknowledge the risk and potential of CROX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CROX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.